The cost to close a limited company depends on whether the company is solvent or insolvent. If you’re insolvent and need to close a company that has debts, the cost is £1,995 plus VAT.
If your company is solvent and you want to close it efficiently, it can be considerably cheaper, at a cost of £995 plus vat. There are additional costs, such as disbursements and statutory bonds for each, which usually amount to around £300, but this depends on the debt/asset value.
It’s important to note that if you can use Business Asset Disposal Relief, then the reduction in tax to 10% will more than cover the cost of using an insolvency practitioner.
Clarke Bell can provide an exact quote once we understand the financial situation of the company, how many shareholders or creditors are involved, and the total value of assets owned.
If you have decided it is the right time to close a limited company, there are many things to take into consideration.
From whether your company is solvent or insolvent, to how you should close the limited company to what costs you will incur, company directors have a lot to think about.
Clarke Bell has put together this article explaining how much it costs to close a limited company and what the process involves, helping you make sense of what it takes to close a company.
When looking at how to close a limited company, you will first need to establish whether the business is solvent or insolvent.
How to close a limited company that is solvent
If the company is solvent (i.e. it can pay all of its debts / it has no debts) and it has assets in excess of £25,000, the best way to close it is typically with a Members’ Voluntary Liquidation due to the tax benefits.
Members’ Voluntary Liquidation (MVL)
An MVL is a voluntary process that winds up a solvent company.
This is a process that company directors initiate at a time that is right for them and the business.
It might be the case that the director is looking to retire, take a step back within the company and move to a PAYE role (perhaps due to the IR35 / Off Payroll rule changes) or they are looking to discontinue part of their business.
A licensed Insolvency Practitioner must be appointed to oversee and carry out the process.
A Members’ Voluntary Liquidation is a popular option for directors of solvent companies as it is a tax-efficient way of winding up a business. This is due to the fact that when closing a company through a Members’ Voluntary Liquidation, any funds taken out are subject to Capital Gains Tax rather than Income Tax, which is set at just 10%.
This is significantly less than the level of income tax you would otherwise be charged, which sits at 18% for the basic level and 28% for the higher level.
There are also further advantages for directors who qualify for Business Asset Disposal Relief (formerly known as Entrepreneurs’ Relief) which means you can sell all or part of the company and pay just 10% in Capital Gains Tax on profits over the lifetime of your business up to a limit of £1 million. This can save directors a huge amount on their tax bills.
How much does it cost to close a limited company through an MVL?
At Clarke Bell, we have a range of categories for our Members’ Voluntary Liquidation service, meaning we can help you close down your solvent company with an MVL, whatever your situation is.
Our prices are affordable, and we make the distributions to shareholders quickly.
The cost of an MVL starts from just £995 +VAT +disbursements.
The MVL procedure is certainly an effective method of closing a company, with its tax efficiency being a major advantage. This advantage singlehandedly makes the procedure cost-effective for larger companies, which have enough retained profits to properly benefit from this advantage and justify the cost. However, if your solvent company is smaller, lacking the £25,000 in retained profits baseline, then you might be better off looking at company dissolution as a viable solution.
Company dissolution, also known as a company strike-off, has the same goal as liquidation, in that it aims to close a company properly and realise its assets. However, company dissolution achieves these aims through different means. Dissolution can be initiated by directors once at least half of the board are in agreement. Directors can begin dissolution by filling in and submitting a DS01 form to Companies House. This form can be submitted either in paper format or through the online portal, and will cost directors £10 and £8, respectively. This price point is the main attraction for dissolution, as other methods of closing a company simply cannot compete with this affordability.
Notice of Intention
After the submission of the DS01 form, directors must then publish a notice of their intentions in the Gazette. This notice announces the upcoming closing of the company to the public, ensuring that third parties, such as outstanding creditors or uninformed board members, have a good chance of finding out about the dissolution. These third parties can then lodge an objection, halting the attempted dissolution in its tracks. Depending on the scenario in question, the attempted dissolution will either be scrapped or allowed to continue.
If your attempted dissolution is not obstructed, you will be able to begin closing your company in earnest. You will have until the procedure ends to ensure all assets are removed from the company, and its accounts are emptied. This can be done by selling assets, transferring them to another company, or otherwise. After everything is removed, you can wait until your company is removed from the Companies House register. However, if any assets remain in the ownership of the company at the end of the process, they will be considered “bona vacantia”, or without an owner. These assets will then be transferred to the Crown, as they cannot be owned by an entity no longer in existence.
Can I dissolve an insolvent company?
Unfortunately, company dissolution is simply off the table for insolvent companies. While nothing prevents a director from attempting to dissolve an insolvent company, it is an option rife with risk for no reward.
The first stumbling block is the Gazette notice. In all likelihood, an insolvent company’s outstanding creditors will see this attempt at dissolution and file an objection. The dissolution will then be halted, and the creditors might be provoked into submitting a winding-up petition. If approved, this would see the company placed into compulsory liquidation. This procedure is not typically favourable to directors, so it is best avoided if it can be helped.
Even if the insolvent company is dissolved without the notice of a third party, the company can be reinstated when they find out. Creditors have an incentive to do so, as reinstating the company is the only way to recover the debt. That said, creditors have even more incentive to ensure this scenario never happens, as it will cost them more than if they recovered the debt normally. If creditors successfully reinstate the company and have it placed into compulsory liquidation, it can be very detrimental to directors. The dissolution could be perceived as an attempt to flee from debt, which will make defending against accusations of misconduct much more difficult. If found guilty, directors could face any of the following penalties:
- Disqualification of the director’s license for between 2-15 years, including senior positions in both owned and unowned companies
- Personal liability for company debt
- An order to repay the company a loan or dividend
- Prison sentence
As you can see, compulsory liquidation is not ideal for directors, and is typically not worth the risk. Instead, you should close your company through a different method, such as a Creditors’ Voluntary Liquidation.
How to close a limited company that is insolvent
However, if your company is insolvent (i.e. it cannot pay its debts), then the previous options will not be available to you. Instead, you will need to look at other options to close your insolvent company. There are two standout options, with one being quite useful and effective, and the other more of a hindrance than a help. These are Creditors’ Voluntary Liquidation (CVL) and compulsory liquidation, respectively.
Creditors’ Voluntary Liquidation (CVL)
Although a CVL occurs when a company is insolvent, it is still a completely voluntary form of liquidation.
This is an option open only to insolvent companies – i.e. which have more liabilities than assets or can no longer afford to cover their daily costs or pay their debts.
Although this process ends up in the company being liquidated and dissolved, there are many benefits for both directors and creditors using a CVL.
This is a good option for businesses that no longer believe they have a sustainable future, and the best option will be to close. This is a way for company directors to take control of the situation and act before things get any worse.
Opting for Creditors’ Voluntary Liquidation also means you can avoid being forced into compulsory liquidation, the most serious form of liquidation.
What’s more, as it is a voluntary process, directors who want to put their company into Creditors’ Voluntary Liquidation are free to choose which Insolvency Practitioner they appoint.
With this option, the director can close the company and always has the option to open another business in the future if they wish. Finally, their personal finances won’t be impacted.
How much does it cost to close a limited company through a CVL?
At Clarke Bell, we are conscious of the way in which insolvency costs can spiral out of control. We have committed ourselves to working to fees based upon a combination of a fixed fee and a percentage of realisations, and we offer two different pricing structures for CVLs depending on the individual situation.
Our CVL fee cost is from only £1,995 (+VAT +disbursements).
If the liquidation is a complicated one, then the price is determined on a case-by-case basis.
In some cases, the cost of the liquidation can be met from the value of assets sold. We will advise you if this is possible in your case.
We’ve touched upon this form of liquidation earlier, so we won’t labour the point that it’s a poor option for closing a company. Instead, we’ll focus on how it can occur and what it might cost you.
Compulsory liquidations are typically initiated by creditors that aren’t optimistic about their debtor’s ability to make repayments. It is usually a last resort for creditors, one taken when all other options have been exhausted and ended in failure. Creditors can initiate a compulsory liquidation by signing and submitting a winding-up petition to the courts. If approved, the company in question will be served a winding-up order, informing the company’s directors that compulsory liquidation is on the horizon. While this can be contested, challenges are not often successful.
The costs of compulsory liquidation are variable, to say the least. How cheap or expensive the procedure is strongly depends on a given scenario, and how directors have acted prior to the compulsory liquidation of their company. There is a small number of fixed costs, such as paying the Official Receiver’s, or liquidator’s, fees, but these are typically quite low. The main cost comes in the form of penalties for misconduct or malfeasance.
If a director is found to have engaged in misconduct, they risk severe penalties. These penalties can include the disqualification of a director’s license, fines, personal liability for company debt, and more. Depending on the situation at hand, directors guilty of misconduct could find their company’s compulsory liquidation very costly indeed. It is not impossible to be fined for misconduct, made personally liable for one or more company debts, and stripped of the ability to work as a director for several years in the same case. Naturally, this can be devastating for a director’s personal finances.
Due to the risk associated with compulsory liquidation, and the damage it can do to your reputation as a director and your personal finances, it is a procedure best avoided. If you suspect that compulsory liquidation could be coming your way, it is imperative that you speak with a licensed insolvency practitioner immediately. With their help, you can take the initiative and ensure you aren’t caught unawares by compulsory liquidation.
Ready to take the next steps? Get in touch with Clarke Bell today
Whether you are considering closing your limited company either through a CVL or MVL, Clark Bell is here to help you.
Our team of friendly experts will work closely with you to take care of everything, giving you peace of mind. What’s more, we offer nationwide, remote services, meaning you can easily close your company from the comfort of your own home or office.
To see how we can help you close your company, at a very affordable price, simply get in touch with our team now.